Robin Guthrie (guitar) and Will Heggie (bass), both from Grangemouth, Scotland, formed the band in 1979. At a local disco, Nash, they met Elizabeth Fraser, who would eventually provide vocals.

The band's influences at the time included Joy Division, The Birthday Party, Sex Pistols and Siouxsie & The Banshees. The band were named after the song "The Cocteau Twins" by fellow Scotsmen 'Johnny and the Self-Abusers' (who later renamed themselves Simple Minds; the song "The Cocteau Twins" was also re-penned as "No Cure"). Their debut recording, Garlands (released by 4AD Records in 1982), was an instant success, as was the subsequent Lullabies EP. They themselves remain influential to aspiring post-punk acts today.

Although the entire band was praised for their performances, Fraser received the most attention. At times barely decipherable, Fraser seemed to veer into glossolalia and mouth music. Allmusic reviewer Ned Raggett writes that "part of her appeal is how she can make hard-to-interpret lyrics so emotionally gripping."

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